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Life insurance and disability policies are often valuable marital assets when it comes to divorce. Not only can these policies play a role in determining proper child related issues and/or spousal support, these policies can be used to create a contingency plan for a child’s education fund or similar issues should a parent pass away unexpectedly.

Thus, it is important to know how your family’s policies may be treated in a divorce.

Life Insurance

The first determination to make regarding life insurance is whether or not your life insurance policies have a cash value. Term policies do not, whereas whole life and other types of life insurance typically do. If there is a cash value, it must be considered in the overall allocation of assets and debts in your divorce.

Typically, the policy itself is awarded to the spouse whose life is insured by the policy. However, in certain situations and for certain reasons, one spouse may wish to own a policy that insures the life of their former spouse.

Disability Policies

Disability policies are awarded to the insured spouse with no value assigned to the policy. If a spouse received disability income during the marriage, any such monies existing at the divorce filing (or assets purchased with those monies), may be subject to division in your divorce. Disability payments received after the divorce is filed belong to the disabled spouse, although the income may be utilized in calculating child support or spousal maintenance.

Other Uses

There are other important uses for these insurance policies in connection with your divorce. For example, you might want to designate the children or one spouse as beneficiary of a life insurance policy for the purpose of providing funds to care for the children or their educations in the event of the death of one parent.

Alternatively, you may want to use life or disability insurance to secure spousal maintenance or other financial obligations. This way, if the owing spouse dies or becomes disabled prior to fulfilling those obligations, the other spouse is assured of payment.

Not all of these arrangements can be ordered by a judge if your case proceeds to trial. However, they can all be part of a settlement contract between you and your spouse. If it is agreed or your spouse is ordered to maintain an insurance policy, you will want to make sure that the spouse carrying the insurance provides periodic evidence that the policy remains in force and that no loans have been taken against it.

Contact us at Hallier Stearns PLC for more information about how life insurance and disability policies may impact your future after a divorce.